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[2021] ZAGPJHC 631
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Firstrand Bank Limited v Diab (2019/37448) [2021] ZAGPJHC 631 (29 July 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 2019/37448
REPORTABLE:
YES/NO
OF
INTEREST TO OTHER JUDGES: YES/NO
REVISED
In
the matter between:
FIRSTRAND
BANK
LIMITED
Applicant
and
PATRICIA
LILY
DIAB
Respondent
JUDGMENT
KATZEW, AJ:
[1]
This is the return date (19
th
April 2021) of a provisional sequestration order granted by the
Honourable Vally, J on 4
th
February 2021.
[2]
The application for the provisional
sequestration order was opposed by the Respondent. She delivered an
opposing affidavit and
Respondent’s
Heads Of Argument
and argued the matter
in person before the Honourable Vally, J.
[3]
Although the Respondent contested the
validity of the Applicant’s claim in argument before the
Honourable Vally, J, the opposition
to the validity of the claim was
not pursued on the return date.
[4]
The act of insolvency by the
Respondent relied upon by the Applicant in the application for
provisional sequestration is contained
in a settlement agreement that
was concluded between the parties. The Respondent challenged the
validity of this settlement agreement
in the application for
provisional sequestration on the basis that it is
contra
bonis
mores
.
This defence was also not pursued by the Respondent on the return
date.
[5]
For the purpose of the application
for a final sequestration order, this Court therefore accepts that
the Applicant has proved its
claim and that the Respondent committed
an act of insolvency.
[6]
It follows that the only issue left
for determination by the Court in the application for a final
sequestration order is whether
the Applicant has satisfied the
requirement of showing that there is reason to believe that it will
be to the advantage of creditors
of the Respondent if her estate is
finally sequestrated.
[7]
The Respondent did not deliver an
affidavit for the return date to show cause why the provisional order
should not be confirmed.
She did however appoint Attorney Gary Segal
with right of appearance in the High Court to appear on her behalf at
the hearing to
oppose the confirmation of the provisional
sequestration order.
[8]
Mr. Segal confined his submission to
the Court to whether the Applicant had demonstrated that there is
reason to believe that it
will be to the advantage of creditors of
the Respondent if her estate is finally sequestrated.
[9]
The only issue that I raised with Mr.
Choate for the Applicant was whether the Applicant, without expert
evidence on the valuations
of the Respondent’s two immovable
properties, had adequately demonstrated that there is reason to
believe that it will be
to the advantage of the Respondent’s
creditors if the Respondent’s estate is finally sequestrated.
[10]
In particular, I pointed out to Mr
Choate that the evidence in the application by both parties on the
valuations of the Respondent’s
properties gave no indication to
the Court of what the properties were likely to fetch on forced sales
in prevailing market conditions.
[11]
I invited Mr Choate to present
supplementary affidavits on behalf of the Applicant on the valuations
of the properties for purposes
of forced sales. I also afforded Mr
Segal an opportunity to deliver heads of argument, which neither
party had done for the return
date.
[12]
Mr. Choate undertook to arrange for
delivery by the Applicant of supplementary affidavits containing
valuations of the properties
by close of business on Wednesday the
21
st
of April 2021. I gave Mr Segal until 11h00 on Thursday 22
nd
April 2021 to submit heads of
argument.
[13]
I stood the matter down until 14h00
on Thursday the 22
nd
of April 2021 for final submissions.
[14]
On Wednesday the 21
st
of April 2021 the Applicant delivered a Confirmatory Affidavit by
Lisa Kerrin Silberman, a Director of the Applicant’s attorney
of record, whereto were attached the following documents:
14.1
Advanced Valuation Valuers Report
prepared by Cornell Strydom of residential property Portion 8 of Erf
576 Bassonia Extension 1
with a market value of R2 800 000,00
and a Forced Sale Value of R1 820 000,00.
14.2
JNS property appraisers Valuation
Report on Section 8 of SS Bronze Beach SS 179/1981 62 Lagoon Drive,
Umhlanga Rocks, Province of
KwaZulu-Natal prepared by Jean N. Swart
with an Open Market Value of R3 700 000,00 and a Forced
Sale Value of R2 200 000,00.
[15]
The valuation reports were not
accompanied by confirmatory affidavits by either of the valuators. It
needs to be emphasized that
proper valuations in Court proceedings
are required to be under oath.
[16]
In
ABSA
Bank Ltd
v
Mokebe And Related Cases
2018
(6) SA 492
(GJ) the court (Tsoka, J, Pretorius, J and Wepener, J)
stated the following at 519C-522A in relation to the presentation of
evidence
of a valuation of immovable property where a bank or
bondholder seeks to have an immovable property declared specially
executable:
“…
It
is thus incumbent upon the bank or bondholder to place ‘all
relevant circumstances’ before the court when it seeks
an order
for execution. This, in our view, includes a proper valuation of the
property (under oath), the outstanding arrears, municipal
accounts
and the like information. …”
[17]
The insistence by the Court in
ABSA
Bank Ltd v Mokebe And Related Cases
(
supra
)
on valuations under oath was in the context of a consideration of the
rights of a homeowner at risk in legal proceedings of being
evicted
from his or her home.
[18]
When proof of valuations is required
in sequestration applications, it is no less critical to the rights
of interested parties that
the highest degree of proof by way of
evidence under oath be maintained (see
Nel
v
Lubbe
1999 (3) SA 109
(W) at 111F-G
especially the use of the word “Testimony” which normally
indicates evidence under oath).
[19]
Fortuitously for the Applicant, the
presentation in unsworn statements (as opposed to under oath) of the
evidence that this Court
required of the valuations of the immovable
properties of the Respondent is not an issue between the parties. On
the contrary,
Mr. Segal relied on the evidence of the anomalously
described sworn valuations in the unsworn statements for all of his
submissions
in the
Respondent’s
Submissions Regarding Advantage To Creditors
dated
22
nd
April 2021.
[20]
Mr Choate also handed up
Applicant’s
Supplementary Heads Of Argument
dated
21
st
April 2021 to accompany Ms. Silberman’s Confirmatory Affidavit
and the two sworn valuations.
[21]
Mr. Choate points out in
Applicant’s
Supplementary Heads Of Argument
that on
the Respondent’s own version her property in Umhlanga is valued
at R6 million and that the Windeed valuation of the
same property
relied on by the Applicant puts the value of the property at R2 772
000.00, or at best for the Applicant, R3 120
000.00.
[22]
This is in stark contrast to the
forced sale valuation of R2 200 000.00 for the same property by the
expert sworn valuator appointed
by the Applicant.
[23]
Mr. Choate points out further in
Applicant’s Supplementary Heads Of
Argument
that on the undisputed
evidence of the Applicant, in 2018 the Respondent’s property in
Bassonia had a municipal valuation
of R2 679 000.00 with an expected
high of R3 150 000.00.
[24]
These figures must also be contrasted
with the forced sale valuation of R1 820 000.00 for the Respondent’s
Bassonia property
by the expert sworn valuator appointed by the
Applicant.
[25]
In paragraph 5 of his supplementary
heads, Mr. Choate points to a difference of judicial opinion on
whether where there has been
an act of insolvency, there is still an
onus to establish that there is reason to believe that it will be to
the advantage of creditors
of the debtor if the debtor’s estate
is sequestrated.
[26]
Mr. Choate continues in paragraph 6
of his supplementary heads that this Court had inclined towards the
view that despite the act
of insolvency committed by the Respondent,
it was still required of the Applicant to prove that there is reason
to believe that
it will be to the advantage of the Respondent’s
creditors if her estate is sequestrated.
[27]
Although this Court agrees with the
accuracy of Mr. Choate’s rendition of the extract relied on by
him for this statement
from paragraph 2.1.4 of
I
nsolvency
Law
and
its
operation
in
winding-up
edited by A. Boraine, J.A. Kunst and D.A. Burdette (updated to
November 2020) and of his statement that this Court inclines to
requiring proof of advantage to creditors, the Court is nonetheless
of the view that, properly analysed, the difference of judicial
opinion alluded to relates not so much to whether proof of advantage
to creditors can be dispensed with in cases where there has
been an
act of insolvency, but rather to how far the net can be cast in
determining suitable criteria for proof of advantage to
creditors
where there has been an act of insolvency.
[28]
For example, where there is an
absence of tangible evidence of a potential for a pecuniary benefit
to creditors but the Court is
nevertheless of the view that
investigation by a trustee of the affairs of the debtor (who has
committed an act of insolvency)
could unearth hidden assets, the
Court may have regard to this potential for the unearthing of hidden
assets in an inquiry as reason
to believe that it will be to the
advantage of creditors if the debtor’s estate is sequestrated
(see
Dunlop
Tyres
(Pty)
Ltd
v
Brewitt
1999 (2) SA 580
(W) at 583B-G).
[29]
This is different from laying down a
rule that proof of advantage to creditors is dispensed with in cases
where there is an act
of insolvency.
[30]
To return to the facts before this
Court, no sooner had I received the Confirmatory Affidavit of Ms.
Silberman with the sworn valuations,
when I received the following
letter addressed directly to me by Ms. Silberman on the letterhead of
the Applicant’s Attorney
on 23
rd
April 2021.
[31]
There was no affidavit by Ms.
Silberman or anyone else covering the facts in the letter, and
neither was there any application by
the Applicant to supplement it’s
papers in the application with the letter.
[32]
The gravity of the disclosures in the
letter may have been the cause for the departure from required
procedural formality. However,
it needs to be said, especially
in
casu
where
this is the second departure from the requirement of presenting
evidence under oath on vital aspects in the application,
that any
matter that parties want a Court to take into account in a Judgment
needs as far as practically possible to be confirmed
under oath.
[33]
This Court intends, however, to take
cognizance of the contents of letter given that at the time of the
disclosure of the facts
therein to the Court, there was no indication
by the Respondent that she disagreed with the contents in any way.
[34]
Quite to the contrary, Mr. Segal on
her behalf communicated his views to the Court on the contents of the
letter in a letter that
will be quoted in full later on herein. There
is no hint in this letter by Mr. Segal that the truth of the contents
of Ms. Silberman’s
letter is impinged in any way. Neither does
Mr. Segal’s letter contain a reservation of the Respondent’s
rights to
impinge the truthfulness of the contents of the letter once
he had taken proper instructions, which Mr. Segal expressed as a
reason
for the need for time to deal with the matters raised in Ms.
Silberman’s letter.
[35]
Ms. Silberman’s letter is not
brief, but I deem it necessary to quote it in full hereunder as
follows:
“
23 April
2021
Dear Judge
FIRSTRAND BANK LIMITED / P L DIAB
CASE NO: 2019/37448
DATE OF HEARING: 19 APRIL 2021
MATTER NUMBER 1 ON THE ROLL
1. We refer to the above matter which
was argued before you on 19 and 22 April 2021.
2. This correspondence is being
addressed to you as since 22 April 2021 and –
2.1 the submission of the applicant’s
confirmatory affidavit and valuations; and
2.2 the submission of the applicant’s
supplementary heads of argument
and at 09h00 on 23 April 2021, we
received a new Windeed report from the valuers who attended to the
valuations of the two immovable
properties of the respondent
reflecting that on 22 February 2021 (subsequent to the granting of
the provisional sequestration order
by Vally J), that the respondent
sold the Bassonia property for R1 750,000.00 (bellow the forced
sale value) and the transfer
thereof was registered on April 2021.
3. Accepting that when the
respondent’s attorney filed his submissions to the Court
yesterday, he was unaware of the above,
we addressed the attached
correspondence to him providing him with an opportunity to address
this issue particularly as the matter
was expressly addressed to the
Court in submissions made.
4. Moreover, the Court will recall
that the respondent was provided as the contact individual to provide
access to the property
for the valuations to be conducted.
5. The above said, the respondent’s
attorney has not drawn the above to the Court’s attention by
14h00 today, as demanded,
and in circumstances where this is material
to the matters argued before the Court.
6. The materiality of the above is not
in that the sale of the Bassonia property resulted in payment to
certain secured and preferrent
creditors, notwithstanding the
existence of the concursus creditorum, but that the remaining balance
of any proceeds received ought
to have been paid to the respondent’s
provisional trustees for the benefit of her creditors. The respondent
did not disclose
this to the Court, which is a fact which was
peculiarly within her knowledge and would have demonstrated that a
not, not negligible
dividend would have been available to remaining
creditors and would have assisted the Court in determining the issue
of the benefit
to her creditors.
7. The material non-disclosure of this
fact is a matter which needed to be drawn to the Court’s
attention in light of the
arguments presented to the Court by both
parties.
Yours faithfully
Werksmans Inc”
[36]
This letter was sent by Ms. Silberman to Mr
Segal under cover of the following note:
“
Dear Gary
I’m addressing this e-mail to
you in light of a serious matter which has arisen.
I have attached to this correspondence
a Windeed Search which I have received and which reflects inter alia
that your client, despite
having been provisionally sequestrated,
nevertheless sold her property in Bassonia on 22 February 2021, the
transfer of which was
registered on 8 April 2021.
Accepting that you were completely
unaware of what is contained in the attached document, in light of
your written submissions to
Judge Katzew yesterday, which submissions
must have premised on your client’s instructions, I hereby
provide you with an
opportunity to address the above by no later than
14:00 today and to:
1. Draw the above to the judge’s
attention; and
2. Revert to me with the details of
the attorney who attended to the transfer of the property.
The significance of your client’s
conduct will not be lost on you in that the proceeds of the sale of
the Bassonia property
are an asset which fall into her insolvent
estate and are to be distributed to her creditors. Whilst it is
appreciated that the
bondholder ABSA Bank would have been paid,
failing which the bond registered over the property would not have
been cancelled, the
remaining proceeds are to be paid to her
provisional trustee for the benefit of her creditors.
As stated above, I await your urgent
response by 14:00 today.
Regards
Lisa Silberman”
[37]
Mr Segal replied hereto at 13:56 on 23
rd
April 2021 as follows:
“
Dear Lisa
I am endeavouring to get instructions
which I don’t have yet. You requested a reply by 14h00 which I
won’t manage.
Can I suggest that we approach the
Judge this afternoon advising him that we are looking into something
which we believe will be
relevant and would be pleased if he will not
finalise until this is clarified
Regards
Gary”
[38]
Literally minutes later, Mr Segal followed
up with another e-mail to Ms. Silberman at 14h04 as follows:
“
Dear Lisa
Thanks. Please let me know if you
would like me to address a letter as well. You can advise the judge
that you have kept me apprised
and I also suggested contacting him
I meant to thank you for mentioning
that you accepted that I was not aware of this, which I confirm is of
course true
Regards
Gary”
[39]
On 23
rd
April 2021 Mr Segal wrote to me as follows:
“
Dear The
Honourable Katzew AJ
FIRSTRAND BANK LIMITED / P L DIAB
CASE NO: 2019/37448
DATE OF HEARING: 19 APRIL 2021
MATTER NUMBER 1 ON THE ROLL
The applicants attorneys have
forwarded me a copy of the correspondence forwarded to yourself in
this matter.
I responded to them before 14h00 which
is the time they requested stating that I was endeavouring to take
instructions but would
not be able to respond properly by then. I
suggested that we advise your Lordship not to attend to the matter
further until this
further information was clarified.
They forwarded me a further letter
addressed to your Lordship which stated that I had not responded to
them in the time period they
demanded. In this regard I enclose my
response to them prior to 14h00.
I submit that there are issues both in
regard to the conduct of the respondent and the effect this will have
on the application
which need to be properly addressed. Thus my
suggestion that your Lordship be requested to take no further action
in the matter
until this has been clarified.
I will attempt to co-ordinate this
with the applicant’s attorneys.
I wrote to applicants attorneys
expressing my appreciation for accepting that I was not aware of this
step by the respondent, which
I confirm is correct
Yours faithfully
Gary Segal”
[40]
Both the
Applicant’s
Supplementary Heads Of Argument
dated
21
st
April 2021 and
Respondent’s
Submissions Regarding Advantage To Creditors
dated 22
nd
April 2021 primarily traverse the question of advantage to creditors
based on the valuations of the Respondent’s two immovable
properties prior to the disclosure of the sale of the Bassonia
property by the Respondent after the date of the provisional
sequestration
order.
[41]
Mr. Choate in his supplementary heads
relied on the judgment of Trengove, AJ in
Investec
Bank
Limited
and
Another
v
Mutemeri
and
Another
2021 (1) SA 265
(GSJ) at para 16 for the submission that this Court
is entitled to place reliance on the Respondent’s valuation in
her opposing
affidavit of R6 million for her Umhlanga property and on
the undisputed WinDeed valuations for both the Respondent’s
Umhlanga
property and Bassonia property in the Applicant’s
affidavits in the application, which are considerably higher than the
forced
sale valuations of both properties in the sworn valuations
supplied to the Court under cover of Ms. Silberman’s
Confirmatory
Affidavit.
[42]
This submission is premised on the
principle, enunciated by Trengove, AJ in
Investec
Bank
Limited
and
Another
v
Mutemeri
(
supra
),
that where there is no dispute on the papers in a sequestration
application on valuations averred by the parties, a Court is
entitled
to dispense with evidence of valuations by an expert.
[43]
A
fortiori
in
casu
this principle is applicable where it is the Respondent herself who
tenders evidence of the value of R6 million for her Umhlanga
property.
[44]
Although it seems at first blight to
be artificial to accept the evidence of either the Applicant or the
Respondent in the competing
affidavits in the application on the
valuation of the Umhlanga property in the face of the considerably
lower sworn forced sale
valuation that the Court now has before it,
the rule that binds litigants to what they say in their affidavits,
provided it is
not self-serving, must hold sway even in the face of
what may appear to be more realistically conservative estimates. This
is how
I understand the
ratio
of the judgment of the learned Trengove, AJ in
I
nvestec
Bank
Limited
and
Another
v
Mutemeri
(
supra
),
which accords with rigid application procedure.
[45]
Therefore, applying this principle
in
casu
, this
Court is of the view that Mr. Choate is correct in saying that one
need look no further than the Respondent’s own valuation
of R6
million for her Umhlanga property to find more than adequate
sufficient potential for pecuniary benefit to creditors.
[46]
Conceivably the application of the
principle could even go so far as to take precedence over disclosures
to the Court outside of
the competing papers in the application which
conflict with wat is said in the papers, as is the case
in
casu
with
the disclosure in the Applicant’s Attorney’s letter of
the unlawful sale of the Bassonia property by the Respondent
at lower
than forced sale value. Applying the extent to which this principle
can apply, this disclosure could be disregarded by
this Court for the
purpose of including the admitted value of the Bassonia property in
the application in the assessment of advantage
to creditors.
[47]
This puts paid to any possible
argument by the Respondent that adequate advantage to creditors has
not been proved by the Applicant.
[48]
It also completely neutralizes Mr.
Segal’s calculations in his written submissions based on the
forced sale values of both
properties in the sworn valuations that
showed that there would be no residue available for distribution
amongst creditors of the
Respondent after the sale of the two
properties.
[49]
Without in any way sacrificing the
application of this principle through the holding of the Respondent
to what is common cause in
the competing affidavits, the Court is
also entitled to have regard to the conduct of the Respondent now
revealed to the Court
by the information of her alienation of the
Bassonia property after her provisional sequestration at R70 000.00
below forced sale
value as per the sworn valuation of R1 820 000.00,
which she has not sought to explain to the Court despite an
indication given
by Mr. Segal in his letter to the Court that this
needs to be done (and despite the lapse of ample time and opportunity
for doing
so), which adds an extra dimension to the consideration of
advantage to creditors in this application.
[50]
In view of the objective of
sequestration as the orderly dissolution of an insolvent estate to
ensure minimal attrition and maximum
retrieval of salvageable assets
and the fairest possible distribution of the residual value of the
estate to creditors in accordance
with legal rules of preference and
priority not readily recognizable to a layperson, the Court must
obviously lean towards even
the remotest potential for benefit that
supervised dissolution under sequestration holds for creditors,
especially where wasteful
and disobedient conduct of the debtor is
evident (see
Dunlop
Tyres
(Pty)
Ltd
v
Brewitt
(
supra
) at
583A-G).
[51]
Going back to the letter addressed to
me by Mr Segal on 23
rd
April 2021, and particularly to his submission in the fourth
paragraph thereof
“
that
there are issues both in regard to the conduct of the respondent and
the effect this will have on the application which need
to be
properly addressed.”
,
I
hereby confirm that despite this statement by Mr. Segal, the Court
received no further address from Mr. Segal or the Respondent
explaining the conduct of the Respondent in alienating the Bassonia
property after she was provisionally sequestrated without the
consent
of her provisional trustee and of the effect thereof on this
application. The only communication I received from Mr. Segal
after
23
rd
April 2021 was an unsolicited remark regarding the
relevance of Ms. Silberman’s letter to me of 23
rd
April 2021 “
unless
application
is
made
to
reopen
the
matter
”, which remark
was made by Mr. Segal in an E-mail he sent to my registrar on 26
th
July 2021 (more than three months after the application was heard) in
response to my request to him via my registrar for the re-sending
of
Respondent’s Submissions Regarding Advantage To Creditors
,
which I was unable to find.
[52]
The Court infers from the silence of the
Respondent and her legal representative that the Respondent has no
comment to make on her
conduct and on the impact thereof on this
application.
[53]
The Court in determining this
application will accordingly, in addition to the proof of potential
for not negligible pecuniary benefit
to creditors on the papers, have
regard to the conduct of the Respondent in selling the Bassonia
property after her provisional
sequestration by the Court without the
consent of her provisional trustee.
[54]
Indeed, the Court regards the sale of
the Bassonia property as constituting a further act of insolvency by
the Respondent as contemplated
by
section 8(c)
of the
Insolvency Act
24 of 1936
which reads as follows:
“
8.
Acts of insolvency
. A debtor
commits an act of insolvency –
(a) …
(b) …
(c) if
he makes or attempts to make any disposition of any of his property
which has or would have
the effect of prejudicing his creditors or of
preferring one creditor above another;”
[55]
At the very least for the
Respondent’s creditors, the final sequestration of the
Respondent’s estate will empower a
duly appointed trustee to
recover for their benefit the not insubstantial difference of R350
000.00 between the claim of R1.4 million
of the mortgagor over the
Bassonia property, ABSA Bank Limited, and the selling price of R1.75
million.
[56]
This of course is in addition to the
limits that final sequestration will impose on potential for losses
in distributable value
due to the already exposed wasteful and
irregular conduct of the Respondent.
[57]
The Court accordingly rules that the
Applicant has satisfied all the requirements of a final sequestration
order as contemplated
by
section 12
of the
Insolvency Act 24 of 1936
.
The
following is ordered:
1.
The
rule nisi
granted by Vally, J on 4
th
February
2021 is hereby confirmed.
2.
The estate of the Respondent is placed under final sequestration in
the hands
of the Master of the High Court of South Africa, Gauteng
Local Division, Johannesburg.
3.
The costs of the application are costs in the sequestration of the
Respondent’s
estate.
S
M KATZEW
Acting
Judge of the High Court of South Africa
DATE
OF JUDGMENT
:
29 July 2021
DATE
OF HEARING
:
19 April 2021
APPEARANCES
:
For
Applicant:
Mr. L.
Choate instructed by Werksmans Inc.
For
Respondent:
Mr G. Segal (attorney with right of
appearance)